The Federal Open Market Committee will likely announce the beginning of the reduction of its $4.5 trillion balance sheet in what promises to be a busy week for the markets, Prudential’s Chief Market Strategist Quincy Krosby said Monday in her weekly “Connecting the Dots” outlook.
Investors and traders also will focus on the Federal Reserve’s assessment of the economy and inflation at its two-day meeting on Tuesday and Wednesday, Krosby said.
“This is actually considered by many to be the most important Federal Reserve meeting of the year,” she said.
At the start of the massive quantitative easing program that began in late 2008, the Fed’s balance sheet stood at about $800 billion and grew dramatically as the Fed purchased Treasury bonds and mortgage-backed securities. Chair Janet Yellen has emphasized that the winding down process will be slow and gradual.
On Monday, the Fed fund futures market put a 57 percent chance on another rate hike in December. Reporters may focus on whether Yellen sees another rate change in 2017 at the press conference Wednesday afternoon following the meeting, Krosby said.
During and after the meeting, the focus will be on the U.S dollar, Treasury yields, and equities to assess whether the market interprets Fed actions and projections as dovish or hawkish, Krosby said.
On Tuesday, President Donald Trump’s first address to the United Nations will be monitored carefully to see if the administration uses the venue to escalate the threat of a military response to North Korean aggression.
In economic data this week, releases about the housing market will come each day Monday through Thursday. Also, a flash Purchasing Managers Index release is due Friday.
Lastly, the market remains interested in a viable tax reform and/or tax cut proposal as investors are increasingly expecting that the administration will deliver a package at the end of the month.
To talk to Quincy Krosby about her views of the market, contact Lisa M. Bennett or Dara Scerbo.
Read Quincy Krosby’s full Q3 Market Commentary: Third Quarter Checkup.
Quincy Krosby: FOMC meeting, Fed balance sheet to dominate market this week
September 18, 2017